CITY COUNCIL REGULAR MEETING AGENDA PACKET

Page 8 of 14 years. Measures Taken to Address the Infrastructure Funding Gap As noted, $18.9 million in capital project funding, including funding for the Skate Park expansion and Century House renovation projects, was diverted to fund necessary life and safety projects, primarily critical storm drain projects. With the deferral/defunding of other capital projects to fund these critical storm drain projects – which rely on the General Fund – the City is falling further behind on developing and replacing its aging infrastructure. Overall, the City’s infrastructure will continue to age and deteriorate without a significant infusion of new revenue resources, especially with capital costs continuing to grow. Enterprise Funds (Water and Sewer) The City’s major enterprise funds include the Water and Sewer Funds, financed primarily through user charges and separate from the General Fund. Enterprise funds are designed to be supported as business-like entities, whereby customers are charged a fee for the service. Enterprise funds are not designed to generate a profit or excess revenue, but they do need to cover their costs and have adequate reserves to address emergency situations. Water and Sewer Program Funding Needs Both the Water Fund and the Sewer Fund need additional resources to support operations and infrastructure. Years of low rates, consistently the lowest in Alameda County, have caused the costs of providing water and sewer service in Pleasanton to outpace revenue and put the City behind in infrastructure investment. The City’s Water Fund revenue was significantly impacted when three ground wells were shut off due to per- and polyfluoroalkyl substances (PFAS) contamination, resulting in higher water purchase costs. In fiscal year 2022/23, the Water Program was in a precarious financial position such that the City could not meet its debt service coverage requirement for the 2017 Water Revenue Bond, and the reserve level was below the 35% reserve target. Measures Taken to Address Water and Sewer Funding Needs In 2022, the City recognized the Water Fund would be insolvent (bankrupt) without quick action. In November 2023, the City Council approved rate increases for calendar years 2024 and 2025. The additional revenues are being utilized to support ongoing operations and fund near-term improvement projects to increase water system capacity and reliability and begin to address PFAS contamination of the City’s groundwater wells. However, with significant deferred maintenance, resources still need to be identified to fund infrastructure improvements such as pipe replacement and to ensure there are adequate reserves for emergency situations. The approved rate increases allowed the City to issue $19 million in new and necessary water revenue bonds (see the City Council Agenda Packet from May 7, 2024 at https://pleasantonca.portal.civicclerk.com/event/199/files/agenda/329) to fund near-term improvement projects and the City’s partnership with Zone 7 on the Regional Groundwater Facilities Project to address PFAS contamination. The City is finalizing both Water and Sewer System Management Plans (the City's first comprehensive water and sewer plans) to fully inform the infrastructure funding needs for the Page 40 of 114